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Re-shoring presents £15 billion ‘once-in-a-generation’ opportunity for the UK economy, reveals EY report

EY

4 min read Partner content

- Rise in GDP could equate to 315,000 jobs in the UK - New study identifies the potential for the repatriation of manufacturing to several UK regions - North West, South East and West Midlands are regions to benefit most - Aerospace, defence and automotive industries would see the biggest benefits

 

Re-shoring presents a once-in-a-lifetime opportunity for the UK to add £15.3bn of GDP to the economy, and more than 315,000 jobs, according to new research from EY.

The report, Reshoring – Time to seize the opportunity, has calculated the potential GDP and employment impacts of reshoring on UK regions over a ten year period to 2025.  The regions of the UK that are likely to benefit the most from this trend are the North West (£2.4bn GDP, 46,200 jobs), South East - outside London - (£2bn GDP, 35,500 jobs), and the West Midlands (£1.8bn GDP, 35,000).

Mark Gregory, EY’s Chief Economist and author of the report, comments: “Offshoring in the 80s and 90s saw a dramatic reduction in British manufacturing and a shift to services industries that resulted in a fundamental restructuring of the British economy. While some regions saw rapid growth and wealth creation others suffered from high rates of unemployment.

“But the economics underpinning this trend appear to be reversing and presents the UK with a once-in-a-generation opportunity.  While increasing wages in developing countries are eroding their labour cost advantage, there are many more factors driving business to choose British shores. The desire to guarantee quality and the imperative to reduce time to market are increasingly important drivers of location decisions.”

What sectors and where?

While the cost advantages of producing goods in the developing world are lessening, wages are still significantly below those in the UK, therefore it is unlikely that reshoring will occur across the board. However, the report says that certain sectors could see a high proportion of activity reshored given the right incentives.

The top five regions that offer the greatest reshoring potential are North West, South East, West Midlands, Yorkshire and The Humber, and East Midlands.

Continuing, Steve Wilkinson, UK Ireland Managing Partner, Markets at EY  said: “Those businesses that do relocate to the UK will predominantly be capital intensive sectors such as aerospace, defence, automotive, petroleum products and clothing, serving the European market. They will be businesses where quality and brand are important and consequently the supply of a highly skilled workforce is imperative. When firms do choose to reshore to the UK they will tend to cluster in regions that best serve their business, in close proximity to key suppliers, infrastructure and an able workforce.”

Reshoring to UK is not a done deal

But the report heeds a cautionary note, saying that reshoring industry and jobs back to the UK are not guaranteed. The Government has taken some important steps to ensure that the UK remains an attractive place to invest and start a business, but competition is intensifying.

“The UK is not the only country vying for reshoring investment; competition from other developed countries such as the US, Germany and France and emerging markets in Eastern Europe puts the opportunity at risk. Government and business must work together to provide the correct framework so that the advantages of moving production to the UK can be realised,” adds Gregory.

“While steps have been taken to make the UK more attractive to businesses looking to reshore such as reducing the headline rate of corporation tax to the joint lowest in the G20, providing competitive reliefs for innovative and high tech industries, and UKTI’s ‘Britain is Great’ campaign, more can be done,” he said.

More balanced, sustainable and robust economy

Beyond the positive effects on employment and GDP, the research also reveals the wider benefit that reshoring could bring, helping to rebalance the UK’s economy between regions and sectors.

He concluded, “Re-shoring is a growing trend that has the potential to bring significant advantages to the UK economy. By supporting those sectors which offer the greatest return from reshoring in terms of employment and GDP, the UK will have a far more balanced, healthy and robust economy where consumers, manufacturers, service businesses and other sectors are pulling in the same direction.

“This will lead to a more sustainable economy which is better able to weather future global shocks, helping set the UK on a path to where it is not only competing but winning in the race for global growth.”

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